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Forschungsinstitut zur Zukunft der ArbeitInstitute for the Study of Labor

Immigrants’ Assimilation Process in a Segmented Labor Market

IZA DP No. 4394

September 2009

Miguel Angel AlcobendasNúria Rodríguez-Planas

Immigrants’ Assimilation Process

in a Segmented Labor Market

Miguel Angel Alcobendas Universitat Autònoma de Barcelona

and Inside-Spain

Núria Rodríguez-Planas Universitat Autònoma de Barcelona,

FEDEA, Inside-Spain and IZA

Discussion Paper No. 4394 September 2009

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IZA Discussion Paper No. 4394 September 2009

ABSTRACT

Immigrants’ Assimilation Process in a Segmented Labor Market* While much of the literature on immigrants’ assimilation has focused on countries with a large tradition of receiving immigrants and with flexible labor markets, very little is known on how immigrants adjust to other types of host economies. With its severe dual labor market, and an unprecedented immigration boom, Spain presents a perfect natural experiment to analyze immigrations’ assimilation process. Using data from the 2000 to 2008 Spanish Labor Force Survey, we find that immigrants are more occupationally mobile than natives, and that much of this greater flexibility is explained by immigrants’ assimilation process soon after arrival. However, we find little evidence of convergence, especially among women and high skilled immigrants. This suggests that instead of integrating, immigrants are occupationally segregating, implying that there is both imperfect substitutability and underutilization of immigrants’ human capital. JEL Classification: J15, J24, J61, J62 Keywords: immigrants’ assimilation effects, cohort effects, occupational distributions and

mobility, segmented labor markets Corresponding author: Núria Rodríguez-Planas Unitat de Fonaments de l'Anàlisi Econòmica Edifici B Universitat Autònoma de Barcelona 08193 Bellaterra Spain E-mail: Nuria.Rodriguez@uab.es

* Financial support from the Spanish ministry of Education and Science (grant SEJ2006-712) and the Generalitat de Catalunya (grant SGR2005-712) is also gratefully acknowledged.

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I. Introduction

Much of the literature on immigrants’ assimilation has focused on countries with

a long tradition of receiving immigrants, such as Australia (Chiswick and Miller, 1995),

Canada (Baker and Benjamin, 1994; and Hum and Simpson, 2000, 2004), Germany

(Pischke, 1993; Schmidt, 1992; and Constant and Massey, 2005), Israel (Sabatallo,

1979; Flug, Kasir and Ofer, 1992; Friedberg, 2001; and Eckstein and Weiss, 2004,

among others), and the United States (Chiswick, 1978; Borjas, 1985; Friedberg, 1993;

LaLonde and Topel, 1992; Borjas, 1995;; Hu, 2000; Lubotsky, 2000; Duleep and

Dowhan, 2002; Duleep and Regets, 2002; Card, 2005; and Blau and Kahn, 2007, among

others). In addition, despite the well known institutional and labor market differences

existing across these countries, these economies represent relatively flexible labor

markets, in sharp contrast with the segmented labor markets found in southern European

countries, transition economies or developing countries. Most of these studies find that

after an initial adaptation period due to lack of knowledge on how to locate job offers

(Chiswick, 1986; Manning, 2003; and Frijters et al., 2005) and once offers are located,

difficulties in gaining recognition for credentials acquired in the source country (Green,

1995), immigrants’ earnings converge towards those of natives. What is still an open

debate in this literature is whether and to what extent full-convergence takes place—see

Card, 2005; or Fernandez and Ortega, 2008, for a thorough discussion on these issues.

In contrast, not much is known on how immigrants adjust to an economy with

little experience as a host country and in which its labor market presents a strong

dualism. Understanding immigrants’ assimilation process in such circumstances can be

of most policy relevance, especially in the midst of the new immigration flows towards

the fast growing developing economies.1 As Hatton and Williamson (2005) highlight

1 Recent evidence indicates that South-South migration accounts for half of all migration from the South: According to Ratha and Shaw (2007), “some of the largest migration corridors are in the South. After the

3

changes in the direction of world-migration trends towards a more South-South

direction are likely to create new problems for newly industrial economies.

Unfortunately, lack of good data in developing countries (Ratha and Shaw, 2007) makes

this analysis difficult to undertake.2

In this paper, we propose to use Spain as a “perfect” natural experiment to

analyze such issues as the country experienced an unprecedented immigration boom in a

short period of time—with immigrants representing from 1% of the population in 1990

to 12% in 2009—,3 and presents an extreme case of labor market dualism—with at least

one third of its labor force in the secondary labor market for the last two decades.4

While it is true that, currently, the Spanish economy differs in many ways from a

developing economy; its social, political and economic situation three decades ago was

not that different from the present situation of many Eastern European countries or other

developing countries, implying that much can be learned in the developing world from

the Spanish experience. In addition, in spite of its spectacular changes, Spain still

suffers from serious problems similar to those experienced by emerging countries, such

as, a low productivity growth, excessive borrowing, strong rigidities in its labor market

and financial and banking systems (Andrés, 2009; Garicano, 2008; de la Rica, 2009).

The contribution of this paper is to provide new evidence on how immigrants

adjust to a host country with strongly segmented labor markets. More specifically, we

Mexico-United States corridor, the next three largest are estimated to be Russia-Ukraine, Ukraine-Russia, and Bangladesh-India. Many of these large migration corridors emerged due to the partitioning of countries. When such corridors are excluded, the largest of the remaining corridors are not all South-North—some are North-North, others South-South. India, Russia, and South Africa are well-known as receiving countries in the South.” 2 To our knowledge Gindling, 2009, is the first one to analyze the impact of immigrants from one developing country (Nicaragua) to another one (Costa Rica). In addition, several studies have studied rural-urban migration in urban China (Wu and Li, 1996; Xiang, 1996; Knight et al., 1999; Meng, 2000; and Meng and Zhang, 2001). Finally, there is some research on the impact of emigration from a developing country on the labor market of the migrant sending country (for example, Aydemir and Borjas, 2007 and Hanson, 2008). 3 Since early 2000s, the average annual flow of immigrants in Spain has been around 500,000 per year, representing an increase of 75% of he population over that period. 4 With the current crisis, the proportion of workers with fixed-term contracts has gone down to 25% for the first time since 1989.

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use data on the recent immigration wave in Spain to compare the occupational

distribution of immigrants to that of native-born Spaniards, and in particular with

native-born Spaniards with similar observable characteristics. In addition, we examine

how the occupational distribution of immigrants has changed with time spent in Spain.

All along, we pay special attention on possible heterogeneity effects, that is, we explore

whether and to what extent the assimilation process of immigrants varies by gender,

education level, or continent of origin. The paper provides new evidence on the extent

the immigrant resource is underutilized in Spain, and improves our understanding of the

recent wave of immigrants’ adaptation process. The paper concludes with explanations

for the empirical results and some policy implications for countries with severe

segmented labor markets.

While much of the literature on immigrants’ assimilation focuses on earnings

assimilation, such an approach offers a limited and one-dimensional view of the

adaptation process of the newly arrived, or as Card (2005) puts it: “On the question of

immigrant assimilation, … a narrow focus on immigrant earnings is misplaced”. 5 A

richer and alternative measure of assimilation that conveys both labor market adaptation

and socioeconomic status attainment is provided by observing the occupational

distribution of immigrants relative to that of natives as time in the host country

increases. In addition, as Green (1999) explains: “Information on the occupational

distribution of immigrants and how it changes with time in a host economy is central to

understanding how immigrants affect economic growth and how they adjust to a host

country both in economic and social terms.”

To conduct our analysis, we estimate separate multinomial logit models of

occupational choice for immigrants and native-born individuals pooling cross-sectional

5 Unfortunately, no earnings data is available in the Spanish Labor Force Survey. While earnings data are available for Spain in alternative data sets, their use for the current analysis is not without problems (as discussed in more detail in the data section).

5

data from the 2000 to 2008 Spanish Labor Force Survey. Our model of occupational

selection relates selection to observable characteristics such as age, sex, education level,

and place of residence. In addition, for immigrants the occupational choice is related to

region of birth as well as to year of arrival in Spain. We follow the synthetic cohort

analysis proposed by Borjas (1985, 1995) in the immigrant earnings literature and track

specific immigrant waves across a succession of cross-sections. In this manner, we are

able to disentangle the cohort effect from the assimilation effect.6

Our analysis highlights three important results. First, we find that immigrants

are more occupationally mobile than natives. Most of this greater flexibility is

explained by immigrants’ assimilation process soon after arrival to the host country:

Just after arrival, immigrants enter occupations below their skill level and then move

towards higher skilled occupations. However, our second finding indicates that

convergence does not occur: Immigrants are underutilized in Spain as they segregate

into low-skilled occupations (compared to natives with similar observable

characteristics). Third, we find that, among male immigrants, assimilation is strongest

the lower the education level.

This paper is more closely related to the following papers in that they also study

the assimilation process of the recent wave of immigrants in Spain. To our knowledge,

one of the first studies to explore this question is that of Amuedo-Dorantes and de la

Rica, 2007. Using 2001 decennial Population Census data, the authors find evidence of

immigrants’ progressive employment and occupational mobility as their residence in

Spain increases. Unfortunately, due to data limitations, their analysis focuses on

immigrants who arrived during the second half of the 1990s and, therefore, misses most

of the massive recent inflow of immigrants. Moreover, given that they only have a

6 Green (1999) has applied this framework to analyze immigrants’ occupational mobility relative to natives.

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single cross-section, they are unable to follow the synthetic cohort analysis proposed by

Borjas and used in this paper.7 When expanding the analysis to the beginning of the

21st century, the evidence on immigrants’ assimilation is somewhat mixed. On the one

hand, using cross-sectional data from the 1996 to 2005 Spanish Labor Force Survey,

Fernandez and Ortega, 2008, find that although the Spanish labor market is able to

absorb immigrants within five years after arrival, it does so at the expense of allocating

them in temporary jobs for which they are overqualified.8 On the other hand, using

recently available panel data from social security records, Izquierdo et al., 2009, find

that, despite a sizeable and significant wage gap reduction between immigrants and

natives within the first five years after arrival to Spain, full assimilation of wages does

not take place. Finally, as highlighted by Bentolila et al., 2008, the Spanish experience

is comparable to the Israeli one in the steady flow of 1.2% per year over the 1992-2000

period. However, it differs in that the immigration to Israel has been heavily subsidized

by its government through the offer of vocational training programs or public housing.

The structure of our paper is as follows. Section 2 presents the motivation and

several theoretical considerations. Section 3 presents the Spanish institutional

background, the data, and descriptive statistics. Section 4 contains the main results. The

paper concludes with a discussion in Section 5.

II. Motivation and Theoretical Considerations

To understand immigrants’ contribution to a host country, it is key to analyze

immigrants’ education or skill composition at arrival relative to that of the receiving 7 Amuedo-Dorantes and de la Rica, 2007, restrict their analysis to immigrants who arrived between 1996 and 2000, and assume that the quality of immigrant cohorts over this 5-year period has remained unchanged. 8 Fernandez and Ortega, 2008, use the following four measures of immigrants’ success in the Spanish labor market: (1) the labor force participation rate, (2) the unemployment rate, (3) a statistical measure of over-education that considers that a worker is overeducated when his/her level of education is above the mean plus one standard deviation of their occupational category, and (4) the incidence of temporary contracts.

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economy, and how this immigrants’ skill composition varies to that of natives over

time. As Dustmann et al.’s (2005) discussion of the underlying theoretical analysis of

the labor market effects of immigration emphasizes, “there are no effects of

immigration to be expected on labor market outcomes of residents if immigration does

not affect the skill composition of the resident labor force and if capital supply is

perfectly elastic.” Only if immigrants’ inflows change the skill composition of the

native labor force, disequilibrium between supply of and demand for different types of

labor at existing wages and output levels will occur and lead to short-run changes on

wages and employment of natives as the economy moves to a new equilibrium. The

authors highlight that whether the economic theory predicts long-run effects depends on

the assumptions being made on the flexibility of the output mix or the closed ness to

international trade.

Clearly, immigrants can change the skill composition of the host country’s resident

labor force through three different mechanisms: (1) by having different skills from those

of natives at arrival, (2) by how they assimilate to the host country during the first years

after arrival, and (3) by whether they adapt differently to the economy than natives. For

instance, even in the hypothetical case in which immigrants had the same skills as

natives at arrival to the host country, their lack of knowledge on how to find job offers

or the difficulties in getting their credentials recognized could well generate a transitory

disequilibrium in which recently arrived highly qualified immigrants would compete for

low-skill jobs while building up knowledge of the host country’s labor market, so that,

with time, they could find jobs that matched their skills. This is the well known

assimilation process most immigrants initially go through when they first arrive to a

country, and in and by itself such process can generate short-run disequilibrium in

certain types of labor markets. Alternatively, even after immigrants have assimilated,

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they may well react differently from natives to economic changes. This may occur

because immigrants may well be less geographically attached than the native labor

force, have different taste or preferences towards work or different types of work, or

may care less (or differently) about socio-economic status of certain jobs or

occupations.

Clearly, the country’s immigration policy plays a key role in determining the

occupational distribution of immigrants at arrival. For instance, early research on US

immigrants, which used data on immigrants who had mainly entered the US prior to the

1965 Immigration Act, finds that most immigrants were born in Europe and Canada and

were more likely to be in managerial and professional, service and laborer jobs relative

to native born, and were under-represented in “precision production, craft and repair”

jobs and in the agricultural sector. In contrast, research based on more recent

immigrants, that is, those arriving by the 1980s and after, were more likely to come

from Mexico, Central America and Asia, to have lower average schooling than natives,

and to be no longer over-represented in managerial and professional jobs, but instead

show a slight over-representation in primary and farming jobs (Chiswick, 1978; Borjas,

1992; Card et al., 2000; and Card, 2005). This shift in the composition of immigrants is

to a large extent explained by US immigration policy, which went from establishing

national origin quotas with a strong bias in favor of Northern Europeans prior to 1965,

to establishing preferences for people with family members already in the country.

Similarly, Green (1999) finds that immigrants who arrived in Canada in the 1970s,

when Canada’s immigration system gave priority to immigrants who entered via the

“independent” class and who were assessed based on a point-scoring system whereby

potential immigrants were ranked on the basis of skill-related characteristics or wealth,

tended to be more concentrated in the higher skilled sectors relative to the native born

9

and less concentrated in more traditional sectors. However, this over-representation in

the skilled occupations declined across subsequent entry cohorts, reflecting Canadian

immigration policy’s shift away from a selective system towards a system that gives

priority to close relatives of those immigrants already in the country and that does not

assess immigrants on personal skill-related characteristics. Similarly, Sweden has also

seen the ethnic (and skill composition) of its immigrants change with the nature of its

immigration (Duvander, 2001). As the Swedish immigration policy changed from

focusing on labor market immigration in the 1960s, when labor demand was high, to

refugee and family immigration in the 1970s and onward, the ethnic composition of its

immigrants has changed from being to a large extent Finnish in the 1960s, to Iranian,

Chilean, and Polish. In contrast, in Australia, where immigration policy based on a

points system began in the early 1990s and was reinforced in 1996 and later by

tightening the selection criteria, the evidence suggests that there was a stronger self-

selection among prospective migrants leading to higher quality and better employability

for the later waves of migration (Cobb-Clark, 2000, 2003; Richardson et al., 2001,

2002; Chiswick and Miller, 2006; and Thapa and Gørgens, 2006). Right after World

War II, the UK immigration policy initially favored Commonwealth citizens over

others. However, in the early 1970s, the UK shifted its immigration policy towards a

preference for European citizens and tightened entry restrictions to citizens of former

colonies. This change in immigration policy led to a change in the national-origin mix

of immigrants, which had a significant impact on the skill-characteristics of the different

cohorts of immigrants, increasing the skill endowment of the successive cohorts of

immigrants (Bell, 1997).9

9 The strong link between skill characteristics and country of origin has been highlited by many researchers, Borjas, 1985 and 1995, among others.

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Regardless of their initial ethnic-mix and occupational distribution, the evidence

shows that immigrants go through a similar assimilation pattern in the first couple of

years after arrival in which they initially face a period of non-employment or

employment in low skill jobs as they learn how the host country’s labor market works.

As immigrants spend time in the host country and gradually acquire this country-

specific knowledge, their labor market performance may improve relative to that of

their native counterparts (for Canada, see Richmon and Kalback, 1980; Boyd, 1985;

Green, 1999; for Israel, see Flug et al., 1992; Cohen and Eckstein, 2002; and for the

United States, see Chiswick 1978b; Jasso and Rosenzweig, 1988, Borjas, 1992).

However, full convergence of immigrants’ occupational distribution towards that of

natives may not necessarily occur. First, if the country’s immigration policy has

imposed restrictions on immigrants’ entry that match immigrants’ skills to host country

labor demand needs, new immigrants will have an occupational distribution that reflects

the highest demand growth sectors more than will the distribution of the native born.

Second, although some convergence may occur over time, complete assimilation is

unlikely to take place if native-born new labor market entrants move towards sectors

less saturated by immigrants. In addition, once assimilation of immigrants has taken

place, it is likely that immigrants end up being more occupationally mobile than natives

and that they adapt differently to economic shocks than natives (as found by Green,

1991; Barth et al., 2004 and 2006; and Dustmann et al., 2009).

Alternative theoretical models are useful to understand the channels that explain

immigrants’ assimilation process after arrival into the host-country. In the remainder of

this section, we discuss two alternative theories with distinct predictions: human capital

theory and segmented labor markets.

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Human Capital Theory. Eckstein and Weiss (2004) develop a human capital model

in which different skills are rewarded differently at different occupations, and that

describes the investment decisions of immigrants and natives. The added value of this

model is that there is an explicit introduction of a time-since-arrival effect on prices of

skills that influence the immigrants’ investment decision process. The acquisition of

new skills requires some sacrifice of current earnings. The investment decisions

interact with the changes in the market value of the immigrant’s skills and together

determine his earnings growth. In particular, rising prices for imported skills provide an

added incentive for investment because the sacrifice of current earnings is low relative

to the growth in future earnings capacity. In their model, immigrants fully assimilate if

the prices of imported skills converge to the same price as that obtained by natives for

locally produced skills, because increasing prices on imported human capital imply

higher investment by immigrants. However, if imported skills are of lower quality and

so their long-run prices falls short of the value of the locally acquired skills, then

earnings of immigrants may never catch up with those of natives. Such a model

suggests that assimilation or convergence ought to be easier among higher educated

immigrants and those coming from countries with higher compatibility of the human

capital received abroad with the skill requirements of the host-country labor market as it

ought to be easier for those with higher schooling to build up the host country’s labor

market specific human capital because of the greater complementarity between pre- and

post-migration human capital.10

Segmented Labor Markets. According to the dualistic view, the labor market is

segmented by two types of jobs: those in the primary sector, characterized by jobs with

high-productivity growth and good benefits and chances of promotion, and those in the

10 In this model, transitions up the occupational scale occur exogenously and are fully anticipated. Cohen and Eckstein (2002) estimate a structural model in which occupational switches and investment decisions are jointly determined and find similar predictions.

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secondary or informal sector, where less productive jobs with little or no benefits are

found. Under such view, individuals working in the secondary sector are frequently

seen as the disadvantaged segment of the labor force rationed out of salaried

employment (Fajnzylber and Montes Rojas, 2006). In other words, workers with little

access to the primary labor market enter the secondary sector while queuing for wage

and salary jobs. Since more vulnerable groups of native workers, such as low-skilled

workers, youth, and women, tend to be concentrated in the secondary labor market

(Kahn, 2007), converging towards their occupational distribution ought to be relatively

easier for low-skill natives than the convergence process of high-skilled immigrants

towards the occupational distribution of high-skill males natives, who are likely to be

concentrated in the primary labor market.

In the remainder of the paper, we will first discuss the Spanish institutional

background, key to understanding immigrants’ assimilation process. Then we will

provide descriptive evidence that immigrants are more occupationally mobile than

natives. Subsequently, we will analyze how the occupational distributions of

immigrants differ to that of observationally equivalent natives as time in the country

increases. We shall conclude with a discussion on alternative theoretical explanations

for our findings.

III. Background and Data

III.1. Economic and Institutional Background

In mid-1970s Spain had very high firing costs inherited from the Franco regime.

To reduce them, fixed-term labor contracts were introduced in 1984, with the objective

of adding flexibility and promoting employment in a rigid labor market with stringent

employment protection legislation and high levels of unemployment. The policy

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backfired, and fixed-term employment soared, promptly reaching one third of the

Spanish labor force, and creating a dual labor market with workers with fixed-term

contracts holding unstable, low protected and poorly paid jobs, while workers with

indefinite contracts enjoyed protection and presumably also higher wages—Segura et

al., 1991; Bentolila and Dolado, 1994; Jimeno and Toharia, 1993, Hernanz, 2002; and

de la Rica, 2004. The reforms of 1994 and 1997 aimed to enhance the use of permanent

contracts and reduce its cost. However, both reforms were quite unsuccessful at

reducing the share of temporary contracts in the labor force—see Kugler et al., 2005,

and Dolado et al., 2002.

In the last decade, the immigrant population in Spain has soared. While, as

recently as a decade ago, immigrants made up less than 2% of the population, they are

now over 12%. Most of this massive inflow of immigrants has taken place after the turn

of the new century. Several factors explain this rapid change. First, Spanish booming

economy and the social promotion—in the form of increased education levels and

higher labor force participation—of its national (especially female) population

generated a demand for foreign workers (Carrasco et al., 2008 a; Domingo et al., 2006;

and Gil and Domingo, 2007).11 Second, its physical proximity to northern Africa and

eastern Europe places Spain close to countries that supply immigrants.12 Third, its

shared language and historical pass with Latin Americans facilitates the social and

cultural assimilation of immigrants from this continent, as illustrated by the fact that

close to 50% of the immigrants are from Latin America. Finally, the progressive

culture of post-Franco Spain has also contributed to increase immigrants’ social

acceptance (New York Times, 2008).

11 In contrast with northern European countries, the ageing of national working-age population does not explain the arrival of large number of immigrants in Spain (Domingo et al., 2006). 12 17% and 34% of the immigrants in Spain come from Africa and Europe, respectively.

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Spain has not had an active policy of attracting immigrants. As early as 1985,

Spain imposed severe restrictions on non-European Union foreigners who wanted to

establish Spanish residency and citizenship.13 Beginning 1993, further tightening took

place with tougher restrictions on work and residency permit renewals and the

implementation of immigration quotas system, which limited the entry of foreigners to

about 30,000 immigrants per year. At the turn of the century, Spain updated its

immigration legislation and assimilated it to that of other European countries.

However, the free-entrance of foreigners as tourists together with a lax

implementation of immigration laws and several generous amnesties that have granted

legal residence to illegal immigrants (1985, 1991, 1996, 2000, 2001, and 2005) have de

facto converted Spain in an immigrant friendly country (Dolado and Vázquez, 2007;

Izquierdo et al., 2009, among others). In fact, the most common way of obtaining legal

status in Spain during the past two decades has been through amnesties. Most

frequently immigrants arrived in Spain either illegally or as tourists, and they were

subsequently granted legal status through the multiple amnesties that have been granted

since the mid-1980s—see Amuedo-Dorantes and de la Rica, 2005, 2008, and Dolado

and Vazquez, 2007.14 Between 1985 and 1991, as many as 150,000 immigrants

regularized their status; between 1996 and 2001, a total of 400,000 immigrants did the

same; and in the last amnesty, that of 2005, as many as 550,000 immigrants got their

residence permits.

While it is true that our data may under-represent illegal aliens, the fact that we

pool LFS years from 2000 to 2008 minimizes the potential biases that may rise from the 13 To have the legal status, immigrants were required to acquire a work and residency permit that restricted them to work in a particular activity and geographic area only for a year. In addition, immigrants were not granted any social benefit despite paying social security taxes when employed. 14 For instance in the 2000 amnesty to become legal aliens, immigrants had to provide proof of one of the following: (i) residence since June 1st, 1999; (ii) having held a work permit any time during the three-year period preceding February 1st, 2000; (iii) being denied asylum before February 2000; (iv) having applied for any type of residence permit before March 30th, 2000; or (v) family ties to legal residents or to individuals in any of the previous categories.

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successive amnesties because most undocumented immigrants in our sample with at

least one year of residence are likely to have been legalized. Therefore, although

amnesties may affect in some ways the estimates of the year prior to the amnesty for the

recently arrived immigrants, subsequently these individuals have no reason to misreport

their date of arrival once they are legal aliens. For this reason, and given that we focus

on year-to-year differences in assimilation rates, we do not think that amnesties ought to

be a major concern in our analysis—similar arguments were presented in Amuedo-

Dorantes and de la Rica, 2007.

III.2. Data and Descriptive Statistics

Our analysis is based on data from second quarter of the Spanish Labor Force

Survey (LFS) from the years 2000 to 2008.15 The Spanish LFS gathers information on

demographic characteristics (such as, age, years of education, marital status, and region

of residence), and employment characteristics (such as work status, occupation, and

industry).16 In addition, for immigrants—defined as foreign-born workers who do not

have the Spanish nationality, the LFS collects information on the number of years of

residence in Spain and the country of birth.

The native-born samples are random samples of males and females aged 20 to 64 at

the time of the relevant LFS. The immigrant sample consists of all immigrants in the

relevant LFS who entered Spain after January 1, 1990, were aged 20 to 64 at their time

of arrival, and are under age 65 at the time of the relevant LFS. Analysis is restricted to

immigrants aged 20 to 64 at time of arrival to concentrate on individuals who were

likely headed for the labor force in the near future and to avoid issues of non-

15 As is common practice in the research using this dataset, we only use the second quarter to avoid repeated observations. The LFS is carried out every quarter on a sample of around 60,000 households. Each quarter, one sixth of the sample is renewed. However, the dataset does not include a variable that allows identification of individuals along the six consecutive interviews. 16 Unfortunately, the EPA does not gather workers’ earnings information.

16

comparability of the experiences of young immigrants who received part of their basic

education in Spain and those who arrived at older ages.17 The samples are restricted to

individuals under age 65 in the LFS year to avoid complications involving retirement

decisions. The immigrant samples are restricted to those entering in 1990 and after

because the vast majority of immigrant flows has taken place from the late mid-nineties

onwards.18

Table 1 displays personal and demographic descriptive statistics for natives and

immigrants for each of the LFS years (descriptive statistics by gender, continent of

origin, and cohort of arrival can be found in Tables A.1 and A.2 in the Appendix). The

major difference between the two population groups is that immigrants are younger than

natives.19 In addition, we observe that there are education differences across the two

groups.20 Within the native population, there has clearly been an increase of workers’

investment in human capital, as the fraction of natives with a college degree, vocational

training, or a high-school diploma has increased over the nine years under analysis.

Although a similar trend is observed for immigrants with less than a college degree

(with the share of those with vocational training increasing the most), the share of

immigrants with a college degree has decreased over-time from 22% to 17%.

Comparing immigrants and natives in our sample, we observe that immigrants are

slightly more educated than natives (especially in the earlier surveys).21 Finally, it is

17 This restriction criteria is common in the literature, see Boyd, 1985; Kossoudji, 1989; and Green, 1999, among others. 18 Again this is a common restriction in the Spanish literature, see Amuedo-Dorantes and de la Rica., 2007, and Gonzalez and Ortega, 2008, among others. 19 One exception is in the range between 20 and 24 years old, where we observe that there are more natives than immigrants. This is an artifact of how the sample of immigrants was selected as we restricted immigrants to be 20 years old or older at the time of arrival. 20 Throughout the analysis we consider four education levels: high-school dropouts; individuals with a high-school degree; individuals with some college education or vocational training (they may have a trade certificate, but no college degree); and individuals with completed university studies. 21 Although much of this result is due to the fact that we restricted the sample of immigrants to those arriving after 1990, we are not the first ones to find that the level of education of immigrants is not that different from that of natives (Dolado and Vázquez, 2007).

17

noteworthy to highlight the change in the continent of origin of immigrants over the last

decade. While in the early 2000s, immigrants came from Europe, Africa and Latin

America in similar proportions; by the 2008 LFS, the weight of immigrants from

Europe and Africa has been reduced drastically, representing only 12% and 17%,

respectively, and giving room to a large inflow of immigrants from Latin America.

Table 2 presents the occupational distributions at each LFS for the native born and

for immigrants from each of the entering cohorts. The occupations are grouped into

five categories as follows: “Professionals”, which include managers, engineers, social

scientists, teachers, health occupations, and arts; “Other white-collar” occupations,

which include clerical, sales, and service occupations; “Qualified blue-collar”

occupations, which cover qualified workers in agriculture and the fishing industry,

handcraft workers, mining and construction technical workers; “Non-qualified”

occupations, which include jobs such as janitors, or non qualified laborers; and “Not

working”, which includes both the unemployed and persons out of the labor force.22

The latter category is included because, as argued by Green 1999, it is an important part

of immigrant adaptation and will likely vary between immigrants and native born.

There are at least five striking differences in the amount and type of change within

the immigrant and native-born distributions across LFS years. First, while both

population groups have shown a clear tendency of moving out of the “not working”

category over the 2000-2008 period, the change has been considerably larger for

immigrants arriving after 1999, with reductions of 20 to 28 percentage points, versus

the—by no means negligible—reduction of 11 percentage points experienced by the

native-born cohort.23 This shift out of the “not working” category for both population

22 Notice that the self-employed are included in our sample. 23 Such reductions are not observed for the cohort arriving in 2001 and are considerably smaller for the cohort 2002. This is probably explained by the fact that, due to the 2001 crisis, immigrants entering during 2001 and 2002 did so with favorable job perspective, as reflected by the lower fraction of

18

groups reflects the Spanish economic growth over the period under analysis. However,

the fact that this trend is stronger for some, but not all, cohorts of immigrants, added to

the observation that frequently the earlier cohorts show a movement similar or even

smaller to that of the native population seems to suggest that part of what is going on is

the assimilation of the immigrants. Second, the trend of this movement out of the “not

working” category has also differed across the two populations. For the native-born

population, the tendency has been gradual over the nine years, while for the immigrants

most of the shift out of this category has occurred within the first two to three years

after arrival to Spain, reflecting the initial assimilation process that this population

experiences.

Third, the destination of these individuals has also differed for the two groups.

While the native-born population have seen an increase in the “professional”, and, to a

lesser extent, the “other white-collar” categories; the immigrant population has mainly

moved into the “blue-collar” and, to a lesser extend, “other white-collar” categories.

Among immigrants arrived within the last decade, there is a trend out of the

“professional” category. Fourth, there is clearly a greater fluidity of the immigrant

distribution relative to that of the natives, as several cohorts of immigrants experience

changes within an occupational category of up to 17 percentage points over the decade,

while no native born category changes by more than 7 percentage points. This greater

fluidity of the immigrant distribution may well reflect a greater ability to adjust to

economic changes.

Finally, when comparing the occupational distributions for earlier cohort of

immigrants with those of the native born, we find that over-time natives have increased

immigrants from these cohorts “not working” compared to the other cohorts. The reductions are also smaller for the most recent cohorts, that is, those arriving in the last three years. The data suggests that the smaller reductions are most likely a consequence of these immigrants still assimilating to the new country.

19

their likelihood of being in the “professional” category, and “other white-collar”

category compared to immigrants from the 1990s. In contrast, the immigrant

population is relatively more concentrated in “blue-collar” and “non-qualified”

occupations. This seems to suggest that there has been a shift towards less manual jobs

among the native population compared to a shift in the opposite direction for

immigrants, providing some evidence that these two populations have become more

complementary over time. Several recent papers have highlighted that native and

immigrant workers of similar educational attainment specialize in different occupations

and therefore do not compete for the same jobs, explaining the small effect the inflows

of immigrants on the wages of the less-educated natives in the U.S. (Ottaviano and Peri,

2006) as well as in Spain (Carrasco et al., 2008b). For instance, Peri and Sparber, 2008,

find evidence of imperfect substitutability between natives and immigrants of similar

educational attainment in the U.S. Dustmann, et al. 2008, also show that natives and

immigrants in the U.K. of comparable skills do not compete for the same jobs, and

Carrasco et al., 2008b, and Amuedo and de la Rica, 2009, find evidence of immigrants

and natives being imperfect substitutes within skill categories in Spain.24

IV. Methodology

Tables 1 and 2 indicate that the immigrants’ occupational distribution changes

more over time than does the native-born distribution. In what follows, we explore the

reasons for these differences. More specifically, it is unclear whether immigrants’

relative greater occupational mobility compared to the native born is due to: (1)

observable differences between immigrants and natives; (2) immigrants’ assimilation

24Carrasco et al., 2008b, use data from the Spanish Structure of Earnings Survey, of which two waves (1995 and 2002) were available when their paper was written. Only the latter wave has information on worker’s nationality. Amuedo and de la Rica, 2009, use the EPA 1999-2007 and focus on low-skilled workers (with at most a high-school degree). Their analysis on substitutability of natives and immigrants is brief and descriptive, and not the focus of their paper.

20

process to a new economy—the assimilation effect; or (3) differences in occupational

skills across successive cohorts of immigrants—the time-invariant cohort effect.25

To study the importance of these alternative explanations in the Spanish case of

the beginning of the 21st century, we pool data from all LFS surveys and estimate a

multinomial logit (MNL) model of occupational selection separately over each of the

immigrant and native-born samples. The MNL model permits estimation of the effects

of various characteristics of an individual on his choice from among a set of alternatives

that do not have a natural ordering, occupations in this case.26

The MNL can be rationalized using an index model in which the value of a

particular occupational choice is represented by:

jctij

ctctij

cti XI εβ += (1)

where j indexes the alternative, c indexes the entry cohort of the immigrant, t indexes

the LFS year, and i indexes the individual, ctiX is a vector of person-specific

characteristics, jctβ is a parameter vector that varies by alternative and LFS year, j

ctiε is

an error term. The probability that individual i from cohort c chooses alternative j in

period t is the probability that kctij

cti II > for all jk ≠ .

Assuming jctiε follows an independent extreme value distribution, the resulting

specification for the choice probabilities will be a MNL model with cohort-specific year

25 An alternative reason might be differences in reaction to economic change between immigrants and natives after accounting for assimilation and time-invariant cohort effects. Despite the newly received academic attention of this reason (see Barth et al., 2004 and 2006, and Dustmann et al., 2009), exploring its relevance in the context of this paper proved unfeasible due to data limitations, as we only have LFS data from 2000 to 2008, which barely covers a whole business cycle. Explorative analysis with the data at hand indicated that such differences were negligible in the time period under analysis. Further research exploiting the current crisis is likely to lead to different results. While this is of great interest, it lies beyond the point of this paper. 26While the MNL has the disadvantage that the relative odds of choosing any one option over another is unrelated to the introduction of further options, we are unable to estimate the multinomial probit (MNP), which allows relaxation of the independence assumption, because individuals are observed making only one occupational choice, and therefore a correlation matrix cannot be estimated with these data.

21

of arrival dummies and LFS-year dummies. Estimating the following equation for

immigrants,

jctij

ctictij

cti XP εβ += (2)

we obtain estimates of the fitted probabilities of choosing alternative j for immigrants:

jctictij

cti XP β̂ˆ = (3)

For native-born individuals, a similar index model is used but omitting the

region of birth dummy variables and year of entry cohort-dummy variables, as

explained below. Estimating the following equations for native-born individuals,

jti

jtiti

jnti XP εβ += (4)

we obtain estimates of the fitted probabilities of choosing alternative j for natives:

jtitij

nti XP β̂ˆ = (5)

The variables used to explain choices among these alternatives include sex, age,

education, marital status, and LFS-year dummies. In addition, a set of location dummy

variables are included because immigrants tend to exhibit different location patterns

from the native born. For immigrants, a second set of variables is also used. These

include: (1) a set of dummy variables corresponding to the region of birth to pick up

differences in assimilation that might be related to regional characteristics, and (2) year

of entry cohort-dummy variables.

Comparison of the fitted probabilities between a representative immigrant

(equation 3) and a representative national (equation 5) with similar observable

characteristics of choosing alternative j at a given LFS survey year t—as reflected by

equation 6 below—, provides some insight into whether the immigrant resource is being

underutilized in the sense of being found in lower skilled jobs for the same education

22

level than the native born and into the effects of characteristics that are used in

immigrant selection.

)ˆˆ( jntij

cti PP − (6)

We shall estimate these differences in fitted probabilities between a representative

immigrant and national as time in the country increases for the immigrant, obtaining a

cross-sectional measure of assimilation.27 While these cross-sectional estimates will

inform us on the assimilation process of a representative immigrant, they will also

reflect the immigrants’ time-invariant cohort effect and how this cohort experiences

changes in the economy (relative to natives).

To isolate the assimilation effect, we shall compare the same cohort across LFS

years (using again the native born as a comparison group to eliminate the effects due to

changes in the economy). As such, comparisons of the fitted probabilities for a

representative immigrant from cohort c of choosing alternative j between LFS year t and

LFS year (t-k) normalized by the changes observed in the fitted probabilities

experienced by a representative native over the same time period yields:

)ˆˆ()ˆˆ( )()(j

iktnj

ntij

iktcj

cti PPPP −− −−− (7)

, which is an estimate of the net assimilation effect, assuming that immigrants and

natives experience change in the economy in the same way and that X is common

vector across time.28

27 Observing how these differences vary as immigrants’ time in Spain increases delivers, in essence, the same analysis presented in Amuedo-Dorantes and de la Rica, 2007, where they use the 2001 Census to estimate immigrants’ assimilation relative to natives. The authors acknowledge that, because they only have a single cross-section, their estimates will be biased if the quality of immigrants across cohorts changes. However, they argue that the quality of immigrants across cohorts has remained unchanged over their sample period as they only focus on immigrants who have arrived within the last 5 years. 28 While this may seem a reasonable assumption given that we are only analyzing a period of nine years, several authors have found evidence against this for the UK and Germany (see for instance Dustmann et al., 2009). In our exploratory work, we have examined whether there were trends in unobservable differences across cohorts, by comparing the fitted probabilities for a representative immigrant from different cohorts observed at the same number of years after arrival in Spain, again normalizing for changes experienced by the native born over the same time period. Any observed differences in these

23

V. Empirical Results

V.1. Are Immigrants Underutilized in Spain?

In this section, we explore whether immigrants are underutilized in Spain by

comparing the occupational distribution of immigrants to that of their native

counterparts. In addition, we analyze how this native/immigrant differential evolves

with immigrants’ time in the host country. For simplicity of exposure, we plot

differences in fitted probabilities of choosing alternative occupations between natives

and immigrants as immigrants’ time in Spain increases in Figures 1.A through 1.D. The

estimates from these Figures are obtained by subtracting the probability that a native-

born worker of a given type chooses a particular occupation from the probability that an

immigrant of the same type chooses the same occupation at each LFS survey (as

indicated by equation 6 above). Since these estimates are calculated at different years

after arrival in Spain, they represent a cross-sectional measure of assimilation. All

differences are statistically significant from zero at the 5% level.

The analysis is done for the following types of workers: For native-born

individuals, the type 1 person is a male living in Madrid, aged 35 to 39 years old,

currently married, without a high-school degree. For immigrants, that person is from

Latin America and arrived in Spain in 2002.29 Type 2 is the same as type 1 but with a

high-school degree. Type 3 is the same as type 1 but with vocational training or some

college. Type 4 is the same as type 1 but with a university degree. Type 5 is the same

as type 4 but comes from the EU15. Type 6 is the same as type 3 but comes from all

estimates would either reveal that there were unobserved differences across the different cohort of workers or that immigrants and natives reacted differently to economic change. Perhaps not surprisingly, given the short period horizon, we did not find evidence of major differences. 29 Plots of these differences for all the other cohorts, as well as the fitted probabilities for the different types of natives and immigrants are available from the authors upon request. The overall pattern is similar across different cohorts.

24

European countries, excluding those from the EU15.30 And Type 7 is the same as type

1 but comes from Africa.31 Types 1 through 4 are displayed in Figure 1.A and types 5,

3, 6 and 7 are displayed in Figure 1.C.32 Figures 1.B and 1.D report results for women.

A positive estimate implies that immigrants are over-represented in a given category

relative to natives with similar observable characteristics. For instance, in the top LHS

panel of Figure 1.A, the first bar height in the “non-qualified” category indicates that

immigrant males without a high-school degree who arrived in Spain in 2002 are 15

percentage points more likely to hold a job in a “non-qualified” occupation in 2002 than

their natives counterpart. The results are summarized below and clearly show that

immigrants are underutilized in Spain and that they seem to segregate into low-skilled

occupations.33

Compared to natives, immigrants tend to concentrate in the “non-qualified”

category, regardless of their education, sex, age, and of time in the country.

Compared to natives, immigrants are over-represented in the “non-qualified” category.

With the exception of immigrants from EU15—shown in the top LHS chart of Figure

1.C—, this is true across LFS survey years, for all types of workers, and it does not

seem to change much with time spent in the country (implying that full assimilation

does not occur). Moreover, this relative over-representation of immigrants in “non-

qualified” jobs (regardless of their education, sex and age) is large, representing a hefty

10 to 20 percentage-points difference or more for males. It is also quite striking that,

for males, the native/immigrant’s differential does not change with worker’s education

30 While we would have liked to identify eastern Europeans from other Europeans, this is not possible with the Spanish LFS. 31 When deciding on the types by continent of origin, we decided to choose types based on the average education level for that group, as opposed to holding education constant across different origins. The reason being that in this paper we focus on how immigrants assimilate in Spain, as opposed to analyzing whether immigrants of different origins with identical observable characteristics assimilate differently. 32 Note that type 3 is represented twice. 33 Although not shown, the analysis was also done for an eight type who was the same as type 3 but aged 25 years old instead. Whenever appropriate we include the results in the text. Estimates are available from the authors upon request.

25

level—as shown in Figure 1.A. For female workers, the difference between immigrants

and natives is even larger (between the two and four-digit range) and, in contrast with

the findings from males, the gap between natives and immigrants is considerably larger

for lower-skilled workers—as shown in Figure 1.B.

Compared to natives, immigrants without a college degree are under-

represented in the “not working” category—if not immediately after arrival, within

two to three years. Moreover, this under-representation increases at two to three after

arrival in Spain. This pattern is observed both for males and females, and clearly

suggests that low-skilled immigrants come to Spain to work. For high-school dropout

immigrants, there is an initial under-representation in the “not working” category

relative to their native counterparts, and this under-representation increases after two or

three years in the country. The only exception to this pattern is for African immigrants,

for which we observe that right after arrival they are heavily over-represented in the

“non working” category (as shown in the bottom RHS chart of Figure 1.C). This

sizeable difference of about 10 percentage points decreases considerable after African

immigrants have been in the country for three to four years. For immigrants with a

high-school degree or trade certificate, an under-representation in the “not working”

category relative to their native counterparts arises two to three years after arriving in

the country. In contrast, for immigrants with a college degree, we observe an initial

over-representation in the “not-working” category compared to their native counterparts

hovering 5 percentage points for males and 10 percentage points for females. Two or

three years after arrival this over-representation of college immigrants in the “not

working” category looses relevance.

There is some evidence of convergence between low-skilled male immigrants

and natives in “blue-collar” occupations around three to five years after arrival in

26

Spain. For low-skilled male immigrants (that is, those with a high-school degree or

less), there is an initial under-representation in the “blue-collar” category relative to

their native counterparts that decreases with time in the host country, and seems to

disappear three (five) years after arrival for high-school graduates (high-school

dropouts)—as shown in the top charts of Figure 1.A. Moreover, for high-school

graduates, after five years in Spain, they are over-represented in this category relative to

their native counterparts, suggesting that there may be some convergence between low-

skilled immigrants and natives around three to five years after arrival in Spain. There is

again a clear exception to this pattern for immigrants from Africa—bottom RHS chart

of Figure 1.C. In this case, although the under-representation of African immigrants in

this category decreases with time in the host country, it does not vanish even after 6

years in the country.34

High-skilled male immigrants seem to segregate into “qualified blue-collar”

jobs and “non-qualified” jobs—shown in bottom two chars of Figure 1.A. Relative to

natives, male immigrants with a trade certificate are over-represented in the “blue-

collar” and “non-qualified” categories and under-represented in the “professional” and

“other white-collar” categories. There is no apparent trend suggesting some

convergence over time. The findings for young male workers with a trade certificate

(not shown) or male immigrants with a college degree are very similar. The major

difference is the relative concentration in the different categories for the most educated

type. For instance, compared to natives they are under-represented in the “professional”

category and slightly over-represented in the “other white-collar” category. The fact

that the relative differences between immigrants and natives are not reduced over time

seems to suggest that there is little convergence within this group.

34 This non-convergence holds for cohorts who have been longer in the country.

27

Female immigrants seem to segregate into “non-qualified” jobs—as shown in

Figure 1.B. Relative to natives, immigrant women with a trade certificate or less are

over-represented in the “non-qualified” category and under-represented in the

“professional” and “other white-collar” categories. In the case of women with a college

degree, they seem to segregate into “non-qualified” jobs and “other white-collar”

occupations relative to their native counterparts. Again there does not seem to be an

apparent trend suggesting some convergence over time.

Coming from (mainly) Spanish speaking countries facilitates the convergence

between female immigrants and natives. For males, the language advantage has only

a marginal effect on the type of occupational choice. While the charts in Figure 1.D

show that coming from Latin America reduces the females’ fitted probabilities of being

in “non-qualified” and “other white-collar” categories relative to immigrants from

Europe (excluding the EU15), suggesting that coming from Spanish speaking countries

facilitates the assimilation process women, no such improvement is observed among

males. Figure 1.C shows that the differences in the native/immigrants occupational

fitted distribution between Latino immigrants and their European counterparts

(excluding the EU15 members) is merely a shift in the distribution between “other

white-collar” and “blue-collar” occupations. Latino male immigrants are less under-

represented in the former category, whereas European immigrants are more over-

represented in the latter category.

V.2. What Is the Net Assimilation Effect of Immigrants in Spain?

In what follows, we address the following question: For a given cohort, how

does the occupational distribution change with time since arrival in Spain? In essence,

this is equivalent to analyze the net assimilation effect, which compares the change

28

observed in the fitted probabilities experienced by same cohort of immigrants at

different points after arrival to the host country (net of the changes observed in the

native population over the same time period)—as shown by equation 7 above. Figures

2.A through 2.D show the change in occupational distribution for the different types, as

their time in Spain increases. In this case, a positive estimate implies that there is an

over-representation for a particular cohort of immigrants in a given occupation category

compared to that same cohort t years earlier (net of the changes that have occurred

within that same period among the natives). For instance, in the top LHS panel of

Figure 2.A, the sixth bar height in the “blue-collar” category indicates that male

immigrants without a college degree who arrived in Spain in 2002 are 13 percentage

points more likely to hold a job in a “blue-collar” occupation in 2008 than in 2002 when

they first arrived, relative to the change observed over the same period in the same

occupational category among their natives counterparts. The findings are summarized

below:

For male immigrants without high-school degree, the patterns observed in the

“non-qualified” and “blue-collar” categories clearly suggest an assimilation effect as

recently arrived immigrants adjust to the new economy. Within the first few years

after arrival, they first move to “non-qualified” jobs (as shown by the positive estimates

for the “non-qualified” category). However, within a couple of years after arrival, they

begin to shift out of “non-qualified” jobs and “not working” category towards “blue-

collar” occupations. Notice that the move into “blue-collar” occupations occurs around

the second and third year after arrival in Spain. This pattern is also observed for the

case of African male immigrants for whom there is a clear movement out of the “not

working” category into the “non-qualified” category over the first year after arrival and

29

the “qualified blue-collar” category thereafter (as shown in the RHS bottom chart of

Figure 2.C).

Perhaps surprisingly, a very similar assimilation pattern is observed for male

workers with a high-school degree (as shown in the top RHS chart of Figure 2.A). The

differences across these two education groups are practically inexistent, suggesting that

having a high-school degree does not give immigrants an advantage in terms of the

process of assimilation in Spain nor the occupations where they end up working in.

Moreover, given that the odds of being in the “professional” and “other white-collar”

categories increases with the possession of a high-school degree for natives,35 this

finding suggest that the assimilation process is strongest the lower the education level

of immigrants, as those with a higher skills segregate in the same occupations as

those with lower skills.

This finding is confirmed when observing the change in the predicted

occupational distribution of immigrants with vocational training or a college degree

(bottom charts of Figure 2.A). In contrast with the results found for high-school

dropouts, no such assimilation seems to take place among high-skilled male immigrants.

College male immigrants move from the “professional” category to “blue-collar” and

“non-qualified” categories within the first couple of years after arrival and into “blue-

collar” occupations thereafter. Notice that the flow out of the “professional” category

most likely reflects some returned migration. Similarly, for male immigrants with

vocational training, we observe a shift from “professional” and “other white collar”

occupations into “non-qualified” during the first few years after arrival and into

“qualified blue-collar” occupations thereafter.

35 While high-school dropout natives have a fitted probability of being in either category of about 8% and 9%, respectively; for high-school graduates these fitted probabilities increase to 13% and 16%, respectively.

30

The assimilation pattern of low-skilled female immigrants reveals that they are

in a more vulnerable situation than their male counterparts, as no catching up seems

to take place. The top two charts of Figure 2.B show that low-skilled female

immigrants move from the “not working” and “other white-collar” categories into the

“non-qualified” category during the first years after arrival. However, in contrast with

the “catching up” observed among low-skilled male immigrants in the “qualified blue-

collar” category, no “catching up” takes place for low-skilled women in the “other

white-collar” category. The pattern for African female immigrants is similar, although

intensified as the shift is merely from the “not working” category into the “non-

qualified” category (as shown in the bottom RHS chart of Figure 2.D).

While education among high-skilled female immigrants seems to help their

assimilation process a bit, they are far from converging to their native counterparts,

as observed earlier for skilled male immigrants. Right after arrival, female immigrants

with a trade certificate or a college degree shift out of the “professional” and “other

white collar” categories into “non-qualified” occupations. However, very soon

thereafter, the flow goes from “not working” and “professional” categories into “non-

qualified” occupations and (within three years after arrival) into “other white-collar”

occupations.

VI. Discussion and Further Research

From our empirical investigation the following three findings stand out: First,

immigrants in Spain are more occupationally mobile than natives. Most of this greater

flexibility is explained by immigrants’ assimilation process soon after arrival to the host

country: Just after arrival, immigrants enter occupations below their skill level and then

move towards higher skilled occupations. However, our second finding indicates that

31

convergence does not occur: Immigrants are underutilized in Spain as they segregate

into low-skilled occupations (compared to natives with similar observable

characteristics). Third, we find that, among male immigrants, assimilation is strongest

the lower the education level.

The first two findings imply that, within the same skill group, immigrants and

natives may not be perfect substitutes, as recently found by others—see Ottaviano and

Peri, 2006, and Card and Shleifer, 2009 for the US; Manacorda et al., 2006, and

Dustmann et al., 2009, for the UK; D’Amuri et al., 2008, for Germany; and Carrasco et

al., 2008b, and Amuedo and de la Rica, 2009, for Spain. In addition, our finding that

assimilation is strongest the lower the education level for male immigrants provides

evidence consistent with segmented labor markets, and rejects the human capital theory.

In an economy with a dual labor market, immigrants assimilate better if they are low-

skilled. This occurs because native low-skilled workers are more likely to work in the

secondary market, which is of easier access to immigrants, facilitating the convergence

between immigrants and their native counterparts. Should we interpret the lack of this

finding among female immigrants as evidence against the dual labor market theory?

Not necessarily. The fact that immigrant women are further marginalized seems to

indicate that in a segmented labor market, new “underclasses” of workers may appear

among the most vulnerable individuals—Fernández-Kranz and Rodríguez-Planas, 2009,

also find that the dual structure of the Spanish labor market further aggravates the

situation of the most vulnerable workers in the secondary labor market.

Much of this imperfect substitutability between natives and immigrants in Spain

might be explained by the segmentation of the labor market, which, if true, leads to

major concerns on potential efficiency losses for the Spanish economy.36 Important

36 Amuedo and de la Rica, 2009, explore the reasons for this imperfect substitution among low-skilled workers and find evidence that low-skilled natives relocate to jobs with a lower content of manual tasks.

32

topics for further research include the following two questions: What are the

consequences for the Spanish economic growth of underutilizing this large inflow of

high-skilled immigrants? And second, now that a major recession is taking place, what

are the social, economic, and welfare consequences of having so many immigrants in

the most vulnerable jobs, and therefore those most likely to suffer from job destruction?

Policy proposals aiming at adding labor market flexibility and eliminating rigid and

dual labor market structures will most likely enhance an efficient allocation of labor.

However, what seems more policy concerning is to understand the reasons for the imperfect substitution among high-skilled workers as these may be the source of economic inefficiencies.

33

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